MODVAT credit on oxygen and acetylene gas was allowed where the gases were used in or in relation to manufacture.

Oxygen and acetylene gas used for cutting, welding and allied processes were treated as admissible MODVAT inputs because they were used in or in relation to manufacture of the final product under Rule 57A. The Tribunal followed earlier decisions holding that consumable gases used to operate cutting torches are not excluded merely because they do not form part of the finished goods. Credit was, however, confined to the quantity actually used in or in relation to manufacture and not to any other factory use. MODVAT credit was therefore allowed to that extent.

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Issues: Whether MODVAT Credit was admissible on oxygen and acetylene gas used in or in relation to the manufacture of the specified final product under Rule 57A.

Analysis: The Tribunal followed its earlier decisions and the view taken in similar cases that oxygen and acetylene gas, when used for cutting, welding, and allied processes connected with manufacture, qualify as inputs if they are used in or in relation to the manufacture of the final product. The gases were treated as consumable inputs for operating the cutting torch and not as items excluded from MODVAT merely because they were not components of the finished product. However, credit was confined to the quantity actually used in or in relation to manufacture and not to any other use in the factory.

Conclusion: MODVAT Credit on oxygen and acetylene gas was admissible to the extent of their use in or in relation to manufacture, and the assessee's appeal was allowed.

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